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Issue no: 922/66

• FEBRUARY 21 - 23, 2017

• PUBLISHED TWICE WEEKLY

FOCUS

PRICE: GEL 2.50

In this week’s issue...

ON GROWING POTENTIAL From agro-Apps and empowering Local Action Groups to Startup seminars- it's been a busy week PAGE 3, 8 & in Georgia

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Georgian President Visits Enterprises in Adjara to Promote “Buy Georgian” Campaign NEWS PAGE 2

Price & Prejudice on the Georgian Market for Cigarettes ISET PAGE 4

Georgian Airways to Launch Direct Flights to London Gatwick BY NINO GUGUNISHVILI

F

ollowing on from the announcement that Hungary's Wizz Air is to fly direct from Kutaisi to London Luton from June, news very well-received by the expat community here in Georgia, is that from March, Georgian Airways is launching direct flights from Tbilisi to London Gatwick airport. Flights will operate every Monday and Saturday. The negotiations to receive flight slots to one of the UK’s biggest airports began in the summer of 2016 and, as Givi Davitashvili, General Director Georgian Airways, says, they expect customers to be interested in this itinerary. "The company promises to offer comfortable travel from Tbilisi to London," Davitashvili said. In addition, Georgian Airways plans to launch Tbilisi Prague flights from May.

Startup Grind Tbilisi Hosts ExGoogle Software Engineer & Startup Expert PAGE 9

Georgian Student Receives $160.000 Grant from USA SOCIETY PAGE 10

OSCE Permanent Council Condemns So-called Referendum in Georgia’s Breakaway Tskhinvali POLITICS PAGE 11 Prepared for Georgia Today Business by

Markets Asof17ͲFebͲ2017

STOCKS BankofGeorgia(BGEOLN) GHG(GHGLN) TBCBankGroup(TBCGLN)

COMMODITIES CrudeOil,Brent(US$/bbl) GoldSpot(US$/OZ)

INDICES

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GBP31.06

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+10,9%

GEOROG04/21

105.50(YTM5.26%)

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Ͳ0,6%

GBP3.79

Price

+10,4%

+9,3%

GEORG04/21

BONDS

111.42(YTM3.86%)

Price

+0,0%

Ͳ0,0%

GBP14.43

Ͳ0,1%

Ͳ0,1%

GRAIL07/22

110.31(YTM5.51%)

+0,6%

+0,2%

BGEOLN07/23

101.81(YTM5.66%)

+0,2%

Ͳ0,2%

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55,81

Ͳ1,6%

+0,6%

CURRENCIES

Price

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1234,60

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2,6395

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2,7988

+0,2%

Ͳ1,0%

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GEL/GBP

3,2742

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FTSE100

7299,96

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+1,1%

GEL/CHF

2,6362

+0,7%

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FTSE250

18707,49

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0,0453

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DAX

11757,02

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0,7272

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20624,05

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1,4836

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5838,58

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GEL/AMD

0,0054

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NASDAQ

Ͳ1,0%

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MSCIEMEE

149,91

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GEL/UAH

0,0977

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+1,6%

MSCIEM

939,03

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+4,9%

EUR/USD

0,9422

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SP500

2351,16

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GBP/USD

0,8057

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MICEX

2128,21

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CHF/USD

1,0026

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MSCIFM

2581,63

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+2,2%

RUB/USD

58,2915

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Ͳ1,9%

GTIndex(GEL)

1177,93

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+0,1%

TRY/USD

3,6309

Ͳ1,8%

Ͳ3,5%

GTIndex(USD)

887,17

+2,3%

+5,1%

AZN/USD

1,7837

+2,2%

Ͳ3,3%


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NEWS

GEORGIA TODAY

FEBRUARY 21 - 23, 2017

Georgia Participates Georgian President Visits Enterprises in Adjara to Promote in IBTM Arabia International Exhibition “Buy Georgian” Campaign BY THEA MORRISON

A BY NINO GUGUNISHVILI

T

he Georgian National Tourism Administration (GNTA) participated in one of the world’s largest exhibitions, IBTM Arabia, in Abu Dhabi, United Arab Emirates. Meetings with European companies and private sector representatives

were held during the conference, while Georgia’s convention and exhibition bureau introduced a new MICE catalogue providing information on the new members (DMCs, PCOs, and Hotels). During the event, Georgia was named one of the most attractive destinations for MICE tourism for the Arab states. The GNTA wants to continue their efforts to attract visitors from the Persian Gulf countries to Georgia.

s a part of the "Ask for Georgian” campaign, Georgian President Giorgi Margvelashvili visited several enterprises in Georgia’s Black Sea Adjara region last week. Margvelashvili and the Chair of Adjara government, Zurab Pataridze, visited the BTM textile factory and furniture manufacturing company Gloria. The President once again called on the population to purchase Georgian products in order to strengthen the country’s economy. “By purchasing Georgian products, we strengthen our economy, contribute to the stabilization of the national currency, Lari, and help the people employed in local enterprises,” the President said. The aim of the presidential campaign “Ask for Georgian” is the promotion of Georgian goods and products not only

to strengthen the country’s economy, but to create jobs and overcome the existing monetary difficulties. The President initiated the “Ask for Georgian” campaign on January 12. Through this initiative, he has joined the

movement KAR.GE and the initiative of photographer Goga Chanadiri, “Buy Georgian”. The Presidential Administration reports that they will continue promoting Georgian products in other regions of Georgia.

Georgian Wine Degustation in Stockholm

Mikheil Janelidze Meets Romanian Foreign Minister

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ithin the framework of the 53rd Munich Security Conference, Georgian Foreign Minister Mikheil Janelidze held a meeting with his Romanian counterpart, Foreign Minister Teodor Melescanu. The sides exchanged their views over the bilateral relations between Georgia and Romania. Georgia’s energy and transit potential, infrastructure projects

ongoing in the country and possibilities to expand political and economic cooperation between Georgia and Romania were also highlighted during the meeting. The Georgian Foreign Minister provided Melescanu with information on the situation in Georgia’s occupied territories and on the so-called referendum planned to be held there. The Romanian Foreign Minister pledged his strong support for Georgia and welcomed the progress the country has achieved in getting closer to NATO and the EU. The sides underlined the role of Georgia as a leader among Eastern Partnership countries, as well as in terms of participation in the NATO-led peacekeeping missions. Janelidze thanked his Romanian colleague for the Romanian government’s strong support of Georgia’s sovereignty and territorial integrity and invited him to Georgia. According to Melescanu, a high-level delegation from Romania will visit Georgia in 2017.

BY NINO GUGUNISHVILI

G

eorgian wine producing companies: Bagrationi 1882, Askaneli Brothers, Maranuli, Teleda, Giuaani, Kindzmarauli Marani, Batono, BG Wine, Dugladze Wines and Spirits, and Ikano were presented at the Georgian Embassy in Sweden at an event

organized with the support of the Georgian National Wine Agency, SwedenGeorgia Trade Board and the Embassy of Georgia to Sweden. The event was attended by the owners of Swedish hotels and restaurants, wine importers and media representatives. Aiming at the promotion of Georgian wine to the Swedish market, and at diversifying Georgia’s export markets overall, the presentation of Georgian wine is

seen as a basis for all future awarenessraising activities of Georgian wine in Scandinavian countries. Through a private initiative and the support of the Sweden-Georgia Trade Board, a Georgia-Sweden representative, ‘Georgian Wine for Scandinavian Countries - GeoWine for Nordic,’ was founded in an effort to unite Georgian wine companies for the interest of the Scandinavian market, which included Sweden, Finland and Norway.


NEWS

GEORGIA TODAY FEBRUARY 21 - 23, 2017

Minister of Economy of Georgia Boosting Partnership Potential at Business Forum in Istanbul

National Food Agency Suspends 11 Business Operators

BY NINO GUGUNISHVILI

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iorgi Gakharia, the Minister of Economy and Sustainable Development of Georgia, addressed the participants of the Georgia - Turkey- Azerbaijan Business Forum in Istanbul, Turkey, noting that the cooperation between the three countries is an excellent example of how neighboring countries can use their potential for the wellbeing of their populations. “It’s important for the Georgian government that Turkish companies and companies from Azerbaijan fully benefit from the investment possibilities our country has to offer,” Gakharia said, going on to mention the successful operations of a number of companies from Azerbaijan and Turkey in economic sectors in Georgia. Investments from these two countries alone exceed $1.5 billion for the last five years. During the forum, Gakharia met with the Minister of Economy of Azerbaijan and the Minister of Science, Technology and Industry of Turkey, to discuss the strengthening of economic cooperation in the region. “It is vital that, through cooperation, the neighboring countries bring the power of synergy to

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BY THEA MORRISON

G Giorgi Gakharia at the Business Forum in Istanbul

their economic potential, thus developing their economies faster,” Gakharia said. Tourism was the major topic during the meeting of the Georgian Minister and Shahin Mustafayev, Minister of Economy of Azerbaijan, which saw them discussing the possibility of creating Georgian and Azerbaijan touristic routes, linking the most attrac-

tive tourist destinations of the two countries. The Georgian Chamber of Commerce and Industry was responsible for organizing the participation of the Georgian delegation at the business forum in Istanbul, exploring the three-country cooperation possibilities in railway, tourism, pharmaceuticals, medical and other sectors.

eorgia’s National Food Agency has carried out a large-scale raid in Tbilisi and suspended 11 businesses from operating, including three slaughterhouses, four meat wholesale facilities, three catering facilities and an agricultural market. Moreover, 34 business operators were fined for various violations, including meat labeling violations and for selling meat of unknown origin. Overall, the National Food Agency carried out 110 inspections and the monitoring of documents of 140 business operators, including 83 butchers. “Inspection will be carried out throughout the country in order to ensure the protection of consumer interests,” said Zurab Chekurashvili, Head of the National Food Agency. “The Agency will pay special attention to perishable food - meat and meat products, milk and dairy products, to verify their compliance with the requirements of the technical regulations,” he added.

Dutch-Geo Traktor App & Geocell Mobile Phone Purchasing Campaign to Boost Farmer Learning government plan on how to expand and modernize Georgia's most important industry has been forthcoming. It is hardly surprising that such a revolutionary project as Traktor has been endorsed by

the Ministry of Agriculture, although it is poignant that the government has failed and responsibility to push the country forward has fallen with the NGO and private sectors.

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THE FAMILY - BEYOND GEORGIAN HOSPITALITY!

BY TIM OGDEN

T

he vast majority of people in Georgia still work in agriculture, and farmland accounts for much of the country's territory. However, many Georgian farmers still work in a pre-industrial environment, with little to access to modern equipment and seeds, and little knowledge of modern farming methods. Enter Traktor, an app launched by a joint DutchGeorgian team (with assistance from the Millennium Challenge Corporation, ENPARD and USAID) aimed at modernizing agriculture throughout the country. Through the app, Georgian farmers have access to an amount of quality information and supplies hitherto unavailable. Despite being the most common occupation throughout the country, many Georgian farming methods are outdated and farmers have had little access to modern methods or programs through which to learn. To combat this, Traktor has put together over 50 instructional videos for Georgian farmers on the best modern farming practices, featuring agricultural experts from Georgia and abroad; so far, the videos have been viewed over

600,000 times. Access to modern knowledge would have little impact without access to modern supplies, and so Traktor has established its own order service for both domestic and foreign products which can be either delivered or collected. During Traktor's official unveiling, a live test of its delivery process was carried out with a package being sent to the presentation, demonstrating the ease and efficiency of its system. Payment for Traktor products is even possible through Georgia's extensive PayBox system. Yet the initial brilliance of the app seemed to be made almost redundant by the fact that just 30% of Georgian farmers have access to the internet, and the farming community has been proved to be one of the poorest in the country; access to mobile phones capable of running modern applications is naturally rather limited in comparison with wealthier, urban populations. Rising to the challenge, Traktor overcame this difficulty by partnering with Geocell, the country's largest mobile network provider. For farmers who sign up to the Traktor project, Geocell will allow farmers to purchase modern mobile phones for monthly payments of between just nine and eighteen GEL (approximately $3-$6). Agricultural reforms have proved to be challenging for the Georgian government, and no coherent

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4

BUSINESS

GEORGIA TODAY

FEBRUARY 21 - 23, 2017

THE ISET ECONOMIST A BLOG ABOUT ECONOMICS AND THE SOUTH CAUCAUS

www.iset-pi.ge/blog

The ISET Policy Institute (ISET-PI, www.iset-pi.ge) is an independent think-tank associated with the International School of Economics at TSU (ISET). Our blog carries economic analysis of current events and policies in Georgia and the South Caucasus region ranging from agriculture, to economic growth, energy, labor markets and the nexus of economics, culture and religion. Thought-provoking and fun to read, our blog posts are written by international faculty teaching at ISET and recent graduates representing the new generation of Georgian, Azerbaijani and Armenian economists.

Price & Prejudice on the Georgian Market for Cigarettes BY GIORGI MZHAVANADZE Table 1: Excise tax on cigarettes. Source: Tax Code of Georgia

B

enjamin Franklin once said, “In this world, nothing can be said to be certain, except death and taxes.” Yet we have a tax that could prevent hundreds of millions of premature deaths. It is time to use it more effectively. -Prabhat Jha It is a truth universally acknowledged that cigarettes are bad for human health. Yet whenever the government tries to regulate the consumption of cigarettes by increasing their price, it gets a very mixed reaction from the public. Some people (mostly non-smokers) welcome these policies, while others accuse the government of being greedy and proclaim the policies ineffective. Who is right and who is wrong in this debate? Let’s take a closer look at the facts.

BACKGROUND On January 1, 2017, Georgian tobacco smokers faced the fifth tax hike on cigarettes in the last five years. This time, the excise tax was increased by 60 Tetri per pack of filtered and by 30 Tetri per pack of non-filtered cigarettes. By definition, an excise tax is an indirect tax charged on the sale of certain goods, which usually have a high social

Source: Revenue Service

in Georgia) for easily increasing budget tax revenues . Can the government really kill two birds with one stone – i.e. increase the health of the nation AND fill the budget coffers with extra money? Let’s look at how well the excise tax has been helping in both areas so far. Source: Ministry of Finance of Georgia

cost. This means that a consumer does not directly pay the tax, but that the burden initially falls on the producer, who, by including it in the product price, passes the tax on to the consumer. Typical examples of excise duties are taxes on alcohol, cigarettes, drugs, fuel and gambling. In addition to these, even candies, soft drinks and other products containing sugar are objects for excise tax in some countries. In general, excise tax on cigarettes comprises two components: a specific component, expressed as a fixed amount per cigarette pack; and an ad valorem component, expressed as a percentage of the product’s retail price. In Georgia, the first increase of excise tax on cigarettes happened in September 2013; from July 2015, an ad valorem component was

BUDGET added - it constituted 5% of the retail price (10% from 2016). From the beginning of 2017, a minimum of 187 Tetri (specific + ad valorem component) is a pure excise tax component in the price of filtered cigarettes.

WHY DID GEORGIA INCREASE EXCISE TAX? There are a number of reasons behind the recent hike in excise tax on cigarettes. First, according to government representatives, the main aim is to improve public health outcomes by affecting consumption of cigarettes through higher prices. Second, Georgia is obliged to increase control on tobacco consumption in accordance with international arrangements . Third, excise tax is simply a good source (maybe the only way

According to the budget plan 2017, increased excise tax rates on fuels, cars, and cigarettes will together accumulate an additional 597 million GEL tax receipts, of which about 200 million GEL will be collected from cigarettes. This ambitious projection is pretty realistic considering the previous dynamics of tax receipts – from 232 million GEL in 2011 to 549 million GEL in 2016 (see the table).

CONSUMPTION We can make a judgement about the consumption of cigarettes based on the quantity of excise stamps sold by the government (typically, one excise stamp translates into a pack of cigarettes sold). Looking at the quantity of stamps sold between 2015 and 2016, we can clearly see a reduction in consumption of imported filtered cigarettes (the most expensive group on the market). The quantity of domestic filtered cigarettes has also declined. However, the amount of domestic non-filtered cigarettes increased, despite the substantial, in percentage terms, price hike (see the graph). Clearly, some smokers reacted to the price hike by substituting away from more expensive filtered (domestic and foreign) cigarettes towards cheaper nonfiltered domestic ones. This is not good news for the government, given that non-filtered cigarettes are also lower quality and more dangerous for health. Moreover, despite the fact that people are now consuming fewer foreign cigarettes, so far we have not seen a reduction in the value of cigarette imports. On the contrary, import values increased from 90.2 million USD in 2012 to 101.4 million USD in 2016 (without considering the exchange rate effect). Yet, an increase in cigarette price may have a silver lining for domestic producers. The export of cigarettes sharply increased from 5 thousand USD in 2012 to 10.4 million USD in 2016. This may indicate that higher production costs are forcing domestic producers to compete in a higher price range and improve the quality of their products. The positive side effect of this is the increased export potential of locally made cigarettes.

DOES CIGARETTE PRICE AFFECT BEHAVIOR?

Source: Geostat, Tax Code of Georgia

It is interesting to look at the literature that studies the effects of the excise taxes on smoking behavior. One paper “Effects of Tobacco Taxation and Pricing on Smoking Behavior in High Risk Populations: A

Knowledge Synthesis” analyzes 108 existing studies on the linkage between taxation and smoking behavior for different subgroups of population. The authors concluded that raising cigarette prices through increased taxes is an effective policy measure for youth, which is two to three times more price-responsive than the general population. They conclude that increase prices reduce smoking participation, consumption of cigarettes, and smoking initiation among youth. Less pronounced but still strong effects are observed in the case of young adults and persons with low socioeconomic status. However, the main concern with lower-income individuals is about fairness of excise tax. Some literature suggests that cigarette tax is regressive tax on the poor. In other words, the share of money paid on excise tax in their disposable income is much higher than the same indicator for high-income persons. In addition, studies propose that because people of lower socioeconomic status have higher smoking rates, they pay more tobacco tax per capita than those with higher incomes. In other words, smoking addiction may be contributing to a vicious cycle that keeps poor people in poverty. This could be a problem for Georgia as well.

IS THE GOVERNMENT KILLING TWO BIRDS WITH ONE STONE? The answer to our initial question appears to be yes: • the government of Georgia has successfully reduced consumption of cigarettes - the total number of excise stamps granted by Ministry of Finance reduced by 11.8% in 2016 compared to 2012, which is a 62 million cigarette’s pack reduction of consumption. Although the effect on health may be as clear, since there is some substitution from higher quality cigarettes to lower quality ones). • The government tax receipts from cigarette excise tax increased significantly (from 232 million GEL in 2011 to 549 million GEL in 2016). Yet, before celebrating victory, the government should keep in mind several things: First, increased prices have to be accompanied by strategies to mitigate any adverse consequences on the low socioeconomic status population and heavy and/or long-term smokers. Second, more aggressive control of contraband cigarettes is needed to make tobacco taxation more effective in the future. Third, the government should keep in mind that once the price hike reaches a certain level, the tax revenues from cigarettes may start to drop. The last point will be a real test of the government’s resolve to keep the pressure on cigarette prices. And for the sake of society’s health, let us hope that the government’s actions will echo the sentiment of the former New York City mayor Michael Bloomberg, who once said “If it were totally up to me, I would raise the cigarette tax so high the revenues from it would go to zero.”


BUSINESS

GEORGIA TODAY FEBRUARY 21 - 23, 2017

5

What Can We Expect from Georgia’s New Lottery Operator?

B

ack in October 2016, the Ministry of Finance put out a call to international lottery operators. Following the privatization of the Georgian National Lottery in 2009, two companies have since been in charge of the draws. First to step up and take control was the Georgian Lottery Company (GLC), before the postal service came and took over in 2011. Despite almost six years of successful service, the government decided in 2016 that a new company should come in and try to replicate the success that other national lotteries have enjoyed in recent years. With this in mind, international operators were given the chance to submit proposals along with a $5 million bank guarantee by December 12, 2016.

to a country such as the UK which has one of the leading lotteries in Europe, online gaming has helped the game flourish in recent years. Indeed, through a combination of innovation, investment and regulation, iGaming is extremely buoyant in the UK, and there are certainly some lessons to be learned for any operator that takes charge of the Georgian National Lottery. The first and most obvious is access. As well as offering tickets in stores and online, players of the UK Lotto can now play via their mobile devices. In addition to picking numbers for individual draws, mobile lottery players can set up regular payments, save their favourite combinations, and check their results via their mobiles.

NEW OPERATOR COULD USHER IN EXCITING INNOVATIONS

MORE WAYS TO PAY MEANS MORE WAYS TO PLAY

With the bidding process now complete and ministers poring over the proposals, it won't be long until we're given an indication of which company will take charge of our national lottery. As with any takeover, some changes are bound to happen. But what could that mean for players across the country? One of the major areas of development in the lottery industry over the last five years has been the advent of online and mobile betting. Although players have been able to play via GLC's ebetting.ge portal in the past, it's likely that the new operator will bring in their own online services. In many respects, this could make lottery gaming a lot more efficient and, potentially, more varied. If we look

Another interesting innovation UK iGaming has developed in recent years is a universal payment method. When people either can't or won't pay by standard methods such as a credit card, some online gaming operators offer a "pay by phone" method. For example, on the mobile slots site Mr. Spin, players can deposit by phone up to a maximum of £10. The benefit of this is that the deposit is charged directly to their mobile phone contract (or pay as you go credit), and they don't need to input any personal information.

that credit cards are still not a standard method of payment. With this being the case, some form of alternative payment method for prospective lottery players would likely make the game more popular with the general public.

GEORGIAN LOTTERY HAS A CHANCE TO BECOME A MAJOR FINANCIAL ASSET Despite recent innovations in the world of Georgian finance - such as Bitcoin company Bitfury exploring new payment options within the country – paper money is still king. In fact, travellers coming from foreign countries are often advised

Finally, when the new lottery operator does take charge, we could likely see a host of new games built up around the main draw. Although any gaming options would first have to be cleared by the government, many international lotteries are part of a much larger stable of

online betting options. Again, looking at the UK, players can go online and buy-in to the weekly draw and then play games such as slots and blackjack. By grouping the lottery with other online betting options, operators have been able to increase participation and, therefore, increase jackpots. One of the main reasons the Ministry of Finance of Georgia is looking for a new lottery operator is to increase tax revenue. With this in mind, any company that comes in will likely be looking to learn a thing or two from countries such as the UK in a bid to make the Georgian lottery both modern and appealing to all players.

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6

BUSINESS

GEORGIA TODAY

FEBRUARY 21 - 23, 2017

S&L Hotel & Tourism in Georgia INTERVIEW BY NINO GUGUNISHVILI

T

ourism is booming in Georgia, as is hotel construction. S&L is one such new hotel. Opened on Svanidze Street, Tbilisi, in close proximity to Vake Park and Turtle Lake (Kus Tba), it claims to offer the best service to its future clientele, with 17 rooms of standard, comfort and luxe type with balconies, plus a swimming pool and sauna, with an equipped gym soon to be added. GEORGIA TODAY met the hotel owner, Mr. Gaioz Kardava, a Russia-based Georgian businessman, and Levan Matsiashvili, the hotel manager, to find out about the concept of S&L Hotel and their ambition to make it one of the best places for tourists to stay at in the city.

WHY DID YOU DECIDE TO OPEN A HOTEL IN TBILISI AND WHAT SEGMENT OF CLIENTS DO YOU PLAN TO TARGET? Gaioz: I built this house some nine or ten years ago, and rented it out. My family and I have been living in Russia for 32 years; but I decided to transform my Georgian property into a hotel. Although I’ve never worked in the hospitality and tourism business before, I can’t say it was something unplanned or something I didn’t think through carefully. However, there were number of challenges I encountered on the way. It was difficult to find the right employees for the hotel.

Luckily, I found Levan Matsiashvili who has 12 years’ experience in the sphere.

FROM YOUR EXPERIENCE OF OPENING THE HOTEL, WHAT ARE THE MAJOR ISSUES THAT NEED TO BE WORKED ON IN THE SECTOR? Gaioz: First and foremost, I’d say service. You can’t imagine how hard it can be to find a professional housekeeper or cleaner. The level of service in Georgia is, unfortunately, very low, and the reason for that is unprofessionalism, which, I think, lays in the lack of vocational training courses for people who want to work in a hotel. It’s a specific job and needs to be learned just like any other. The quality of service is the most essential thing, though, as in order for a small, family-type hotel to succeed, the owners should not be oriented solely towards profit; the focus should be on gaining clients and serving their needs. We’ve been taking feedback from our guests, and using their suggestions, concerns and comments to help us improve the service we offer. Levan: Although tourism is becoming one of the priority directions for our country’s development, there are still too many problems in the sphere. Hotel management, guide services, transport; these are the sectors that definitely need to be improved. There are hundreds of fantastic resorts and places in Georgia that still have no infrastructure to enable visitors to reach them by car. As for the hotel industry itself, in my opinion, the State needs to create better conditions

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both for businessmen investing in the sphere and for the people working and employed in it. Often, taxes are so high that for a person owning or renting a property, or willing to open a hotel, it’s just not profitable. Perhaps a stimulus would be to free such people from taxes or at least decrease taxes for a certain period of time…

WHAT DISTINGUISHES S&L HOTEL FROM OTHERS? Gaioz: We try to treat each and every client as our personal guest, providing them a family-friendly atmosphere, and offering an individual approach to anyone who decides to stay with us. Being competitive means offering top quality service. The price and the service the hotel provides need to complement each other and be right. In my opinion, family-type hotels are more in demand today. We try to offer a relatively low price but a top quality service to our potential customers. In smaller hotels like this one, it’s easier to constantly improve your service, pay attention to each of your guests and to supervise the work of your employees. At our hotel, we can plan sightseeing tours for visitors which we organize through our own tourism agency. I would like this hotel to be the place I’ve always imagined- the kind I’d want to stay in myself. We’re now in the process of negotiations with an insurance company and will soon be offering insurance to our guests. I hope this will be taken as an indication of how much we care about our clients. Levan: We have standard rooms and

luxe rooms; we have family suites; we have a winter garden and terraces, a sauna, swimming pool and a gym. We have concierge service and a 24-hour desk, and staff members who can help to carry luggage, if necessary. We’re proud to have had very good reviews so far.

WHY DO YOU THINK THE TOURIST NUMBERS ARE UP FOR GEORGIA? Gaioz: If we consider the Russian tour-

ist segment as an example, many of the tourists who were previously traveling to Egypt or Turkey now often consider Georgia as a holiday destination, and that’s probably one of the reasons.

WHAT SEASON DO YOU THINK WOULD BE BUSIEST FOR YOUR HOTEL? Gaioz: I hope we can say our work was successful enough that we’ll be packed all year round, we’ll see…


BUSINESS

GEORGIA TODAY FEBRUARY 21 - 23, 2017

7

Rolling out the Delta Force BY TIM OGDEN

F

oreign military aid in the form of military training and surplus equipment was given to Georgia in abundance after President Saakashvili rose to power in 2003, and the flow was not stemmed after the 2008 war against Russia; on the contrary, it increased. However, not willing to be solely reliant on arms from overseas, the Ministry of Defense (MoD) ordered its production wing, STC Delta, to begin producing domestically-designed weapons, munitions and armored vehicles. Delta began as a wing of Tbilisi Aircraft Manufacturing, a factory that produced droves of planes during the Soviet era but was unable to maintain its output as Georgia became independent and entered a decade of economic turmoil and civil strife. During this time, Delta itself primarily only produced RPG-7 anti-tank weapons (an infamous Soviet design now mostly associated with terrorist groups due to its prevalence on the black market), which saw use in the civil wars of 19921993 and 1998. In 2010, the MoD drastically increased Delta's funding, and within a year the first members of the Didgori family of armored vehicles had been produced. Designed to fulfil the role of armored reconnaissance, several variants have been produced, including a command and control vehicle and a heavily-plated medical evacuation wagon. A year later, Delta showcased its first Infantry Fighting Vehicle, the Lazika, which is hoped to eventually replace Georgia's ageing Soviet APC fleet, and fill a gap left by foreign donations; as willing and able Georgia's Western allies are to supply it with surplus rifles and light vehicles, few NATO APCs and IFVs have been given. Indeed, a main reason the United States has given such vast quantities of

its M4 service rifle to its allies is its abundant supply; after the US Army bought the M4 design from Colt outright in 2009, other companies (mostly in the United States, but also in Belgium and Turkey) are now free to produce the weapon. Naturally, this availability does not extend to modern armored vehicles, although Delta did flirt with the idea of producing its own M4 variant in 2012. However, production of the G5 carbine was ultimately canceled due to the vast number of M4s being granted to Georgia, with Delta's budget and time better spent on other, more pressing projects. Yet despite the G5 never reaching the

production line, Delta did not abandon all small arms production, and continues to make sniper systems and heavy-calibre anti-material rifles. It even designs and produces its own optics for the weapons, saving the MoD significant amounts of money on importing scopes and sight systems. In addition, in recent years the Georgian Armed Forces have started using domestically-made helmets and body armor, all produced by Delta. Delta has also managed to have an impact on the Georgian economy by securing the sale of its armored vehicles abroad. While having made ten deals with foreign countries, the details of the benefactors are classified at this time,

with the exception of Saudi Arabia; Riyadh signed a contract worth $40 million to purchase more than 100 Didgori variants. It is quite possible that Delta's production could undercut Western firms (especially with its armored vehicles and anti-material rifles), selling similar products of comparable quality; Georgia could see a significant boost to its economy if Delta is able to become a competitor to FN, HK, Barrett, Colt and Remington. However, arguably Delta's greatest contribution to Georgia so far has had little to do with defense or economics. Agriculture remains the largest component of Georgia's economy, especially

the country's wine production in Kakheti. Despite the eastern region of the country producing the bulk of Georgia's famous wines, it is racked by stormy weather in the spring and summer months, and hail can be incredibly destructive to crops. Delta-produced chemical rockets are fired from launchers dotted around the region, which detonate within storm clouds. These dissipate chemicals that disrupt the formation of hail, and instead induce rainfall. These rocket systems have proved to be so efficient that they have even attracted the attention of agricultural experts in the United States, who are currently reliant on aircraft to accomplish the same goal.


8

BUSINESS

GEORGIA TODAY

FEBRUARY 21 - 23, 2017

EU Promotes Best Rural Development Practices in Georgia

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he European Union has finalized a series of study tours to the regions of Georgia for representatives of local governance, business and civil society. The study tour to Borjomi on 18-19 February followed earlier tours to Lagodekhi and Kazbegi and aimed to share the experience of Local Action Groups (LAGs) that work to engage local residents in rural development. The Borjomi study tour involved over 40 participants from different regions of Georgia and was attended by government officials, including Nodar Kereselidze, First Deputy Minister of Agriculture; Irakli Matkava, First Deputy Minister of Regional Development and Infrastructure; Nino Javakhadze, Deputy Minister of Economy and Sustainable Development; and Tamaz Marsagishvili, Deputy Minister of Education and Science. In the framework of the European Union's Neighborhood Program for Agriculture and Rural Development (ENPARD), the study tour was organized by the United Nations Development Program (UNDP) and the Ministry of Agriculture of Georgia, in cooperation with the Civil Development Agency (CiDA) and international non-governmental organization Mercy Corps. In Borjomi, the study tour participants met with the local authorities and Local Action Group members and visited the sites of small initiatives funded by the European Union in 2016 to promote

rural development in the region. This included tourism development projects in Bakuriani and forest restoration in Tsagveri. The Borjomi Local Development Group was established in November 2015 with assistance from the European Union and in cooperation with Mercy Corps, Angus Council and the Bundesanstalt fĂźr Bergbauernfragen. The group lists up to 25 members and takes active part in municipal life. The Local Action Groups (LAG) in Borjomi, Lagodekhi and Kazbegi are the first of the pilot LAGs in Georgia. The European Union will continue supporting the establishment of the Local Actions Groups this year in the municipalities of Dedoplistkaro, Akhalkalaki, Tetritskaro, Keda and Khulo. The assistance to the Local Actions Groups (LAGs) is in line with the Rural Development Strategy of Georgia adopted by the Government of Georgia in December 2016. The EU is supporting rural development in Georgia through its ENPARD Program. Implemented in 2013 with a total budget of EUR 102 million, the main goal of ENPARD is to reduce rural poverty. The first phase of ENPARD in Georgia focused on developing the potential of agriculture. The second phase focuses on creating economic opportunities for rural populations that go beyond agricultural activities.


BUSINESS

GEORGIA TODAY FEBRUARY 21 - 23, 2017

Adam Dingle and Colin Donohue talk startups

Startup Grind Tbilisi Hosts Ex-Google Software Engineer & Startup Expert INTERVIEW BY KATIE RUTH DAVIES

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n February 16, Colin Donohue, the Tbilisi Director of Root Deeper Marketing, held a “fireside” chat with startup expert and ex-Senior Software Engineer at Google, Adam Dingle. Present in the audience was a plethora of young Georgians eager to learn more about what it takes to set up and maintain a new enterprise. The event was held within the frames of the Google-sponsored global community ‘Startup Grind,’ designed to educate, inspire, and connect entrepreneurs. Adam Dingle is a software architect and entrepreneur based in San Francisco, California, with a diverse experience in high tech. From 1994-96, he taught computer science at Charles University in Prague. From 2002 to 2006 he worked as a Senior Software Engineer at Google when it grew from roughly 550 employees to 9,000 and went public. At Google, he worked on various products including Google Desktop, Firefox (and planning for Chrome), and served as Technical Lead for Google Toolbar. After Google, he moved into his own startup work, founding Parking Hero as well as the open-source Yorba Foundation, and more recently Roundtown, an event aggregator. GEORGIA TODAY sat down with Adam Dingle before the talk to find out more.

HOW DID YOU COME TO BE IN GEORGIA AND WHAT ARE YOUR IMPRESSIONS? Georgia is a fascinating mixture of old and new: you’ve got crumbling buildings that probably look exactly like they did in the 60s, that 1980s metro, and hidden cafes, stylish stores and restaurants. I lived in Prague for three years in the 90s; I moved there a few years after the revolution when things were in rapid transition. Here in Georgia, you can feel some echoes of that. I came to talk at this event at Colin’s invitationwe’ve been friends for years. Plus, I have a fascination both with Eastern Europe and technology. That led me to Startup Grind and to meeting Georgian startups.

WHAT DO YOU THINK OF THE GEORGIAN STARTUPS YOU’VE SEEN OR HEARD ABOUT SO FAR? People are doing the right things. The entrepreneurs here seem sharp. It’s still a small community, and the government program Startup Georgia is good to encourage more innovation in this direction. And it reflects what other governments have tried to do- I remember Startup Chile- offering $50,000 to any US startup that moved to Chile for at least nine months. Even in the US, the home of big internet companies, the internet was originally created with state-funding back in the 1960-70s. There’s definitely a role for the government to play in nudging private enterprises.

TELL US ABOUT YOUR MOST RECENT STARTUP I founded Roundtown.com, based in Massachusetts near Boston, with my cousin. It lasted three years. Our goal was to list every event happening anywhere on the planet- from concerts to sports. It took us a year to develop before launching. You start out optimistic- and that passion is key to getting it going and keeping it going- even though statistics are high that you’ll fail. And we did. We watched the metricsafter two years I thought we were doing pretty well as visitor numbers seemed to be going up, but it turned out they were mostly one-off visitors. We didn’t have enough visitor traction- of millions of

people who clicked on us, only around 1,000 came back regularly and knew what we were and what we could do. Another mistake was that we tried to go too big, too soon. In retrospect, we should have started out just covering our own city, and expanded from there. When you start a company, you should start small, build your base, then expand.

WHAT OTHER ADVICE DO YOU GIVE THOSE WANTING TO START A BUSINESS? Well, the youth I’ve met in Georgia seem smart, educated. Some speak excellent English- the absolute foundation for communicating with the West. So for that, I tell them to speak as much as possible, and travel. Maybe even try to work for a foreign company to broaden their experience and perspective. They should educate themselves- use the internet. And if they read only one book, let it be Startup Playbook by Sam Altman, an American entrepreneur, programmer, venture capitalist and president of Y Combinator. The book takes about an hour to read and can tell you everything you need to know about startups- what to do, what not to do, based on mentoring thousands of entrepreneurs. What else? Well, I’d say it’s essential to hire smart. It takes time and effort. But you, as the hirer, have to be selective and careful- the cost of a bad hire is very high. You need to be conservative about who you hire. The ideal candidate needs to be: 1) Sharp- gets it quickly, deeply understands what you’re asking of them. 2) Smart- educated, seeks to self-improve. 3) A good communicator. I’d also say it’s important to make a product that a few people love, over making a product that a lot of people “just like.” People who love something are more likely to tell others about it. A last point is to find mentors who have been through the fire, and learn from them so you avoid making the mistakes they made.

WHAT WOULD YOU SAY GEORGIA NEEDS MORE OF TO MAKE A SUCCESS OF THE STARTUP SECTOR? In the two weeks I’ve been here, I’ve seen a real hunger for connection with Western Europe and the US, which is very wise- in isolation you can only do so much and the Georgian market it’s small at 4 mln people. Georgia, among EU countries, is still seen as relatively poor. It needs more exports, more things to sell to the rest of the world. There should be more public-private partnership. There is a lot of potential. Salaries are still very low, combined with low talent, and other countries have taken advantage of such a situation in different ways. China, Ukraine, India all have that to some degree- China exported the service of building physical products, India has its call centers, Ukraine exported a lot of software development. For Georgia, a model where technology is exported, or where there is cooperation with Western companies who outsource operations in Georgia, would be ideal. My last startup, Roundtown.com, had at its peak eight employees. For the cost of hiring those eight, we could have hired maybe 30 in Georgia. The challenge is communication. To someone in the US, Georgia sounds very far away. Even in a big city like New York, maybe only 1 in 3 could say which country Tbilisi is in. Building bridges is essential for any kind of economic leverage. Adam was educated at Princeton and UC Berkeley, and is a passionate believer in sharing knowledge. The effect of this can be seen in the successes of his students, including the blossoming of a student project he led as professor at Charles University into NetBeans, a Java IDE which Sun purchased in 1999.

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10

SOCIETY

GEORGIA TODAY

FEBRUARY 21 - 23, 2017

Georgian Student Receives $160.000 Grant from USA BY THEA MORRISON

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Art Palace Showcasing Private Collection of Picasso, Kandinsky & Other Greats BY NINO GUGUNISHVILI

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n exhibition of the works from some of the world’s most prominent artists: Pablo Picasso, Wassily Kandinsky, Franz Roubaud, Maximillien Luce and the Georgian

painter Gigo Gabashvili opened at Art Palace, Tbilisi, on February 18. The artworks belong to the private collection of Davit Kobakhidze, a US based art collector, and were bought at the Sotheby’s, Christie’s and other famous auctions over time. The exhibition at Art Palace, 6, Kargareteli Street, Tbilisi, is open for one month.

talented and successful student of Georgia’s Private Demirel College, Luka Demetrashvili, is to continue his studies in the United States. Luka will study at the Manhattan College, where he will continue his education in the field of medicine. Luka was awarded the Presidential Scholarship, which amounts to $160,000 over four years. His goal as a student in the United States is to demonstrate his abilities and become a neurosurgeon. Regarding his choice, Luka says, “Manhattan College is a Liberal Arts College, a private university of free science. While choosing the university, I paid attention to the qualification of its teachers and the infrastructure. I also got interested in the sports activities there. I think from the proposed colleges, I chose the best!" Luka is currently in his final year of school. He received primary education in Skhivi Lyceum and has been studying at Private Demirel College since Grade 7. Luka is actively involved in various school activities, and he believes that his success is directly linked with the education he received in Georgia.


POLITICS

GEORGIA TODAY FEBRUARY 21 - 23, 2017

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OSCE Permanent Council Condemns So-called Referendum in Georgia’s Breakaway Tskhinvali TIFLIS KIS TARIFESI 7.5x6cm ING.indd 1

02/11/16 15:23

Stoltenberg: NATO Committed to Georgia’s Security, Territorial Integrity BY THEA MORRISON

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eorgia is making good progress, working closely with NATO teams to implement the Substantial NATOGeorgia Package- said North Atlantic Treaty Organization (NATO) Secretary General, Jens Stoltenberg, on Thursday at a summary briefing upon completion of the NATOGeorgia Commission meeting in Brussels. Georgia is the only non-NATO member state to have held a NATO-Georgia Commission meeting within the framework of the NATO Defense Ministry. Discussion of Georgia’s progress on defense reforms, including the Strategic Defense Review and the implementation of the Substantial NATOGeorgia Package (SNGP), were on the agenda of the meeting. “We recognize Georgia’s progress in the implementation of reforms in the defense field…We have close mutual partnership with Georgia which means that we help each other. We help Georgia to improve its defense capabilities to implement necessary

reforms,” Stoltenberg stated. The NATO Sec. Gen. also talked about the recent developments in the region and criticized Russia’s actions and reiterated his support to Georgia’s sovereignty and territorial integrity. “NATO remains strongly committed to Georgia’s security and territorial integrity. We are concerned by Russia’s deepening relations with the Abkhazia and South Ossetia regions of Georgia. We call on Russia to reverse its recognition of the regions and to withdraw its forces," he said. Stoltenberg also said that the Alliance will continue to work together with Georgia and will provide the practical tools to help Georgia advance towards eventual NATO membership. Prior to the summary briefing, the NATO-Georgia Commission meeting was held, at which Georgia’s Defense Minister, Levan Izoria, spoke about the ongoing reforms and the optimization process within the ministry. Ministers of NATO-member states underlined the importance of Georgia’s contribution to global security, noting the courage and commitment of Georgian soldiers who take part in various peacekeeping missions.

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George Sharashidze COMMERCIAL DEPARTMENT

Commercial Director: Iva Merabishvili Marketing Manager: Mariam Giorgadze

GEORGIA TODAY

EDITORIAL DEPARTMENT:

Editor-In-Chief: Katie Ruth Davies

Journalists: Tony Hanmer, Zaza Jgarkava, Maka Bibilashvili, Karen Tovmasyan, Dimitri Dolaberidze, Maka Lomadze, Tim Ogden, Joseph Larsen, Vazha Tavberidze, Nugzar B. Ruhadze, Nino Gugunishvili, Thea Morrison, Natia Liparteliani

The Hofburg Palace, seat of the OSCE Permanent Council in Vienna. Source: cvce.eu

BY THEA MORRISON

T

he Georgian delegation to the OSCE, headed by Ambassador Konstantine Zaldastanishvili, initiated discussions with the Organization for Security and Co-operation in Europe (OSCE) Permanent Council over the issue of the “referendum” in Georgia’s breakaway Tskhinvali (South Ossetia) region, scheduled for April 9. The international community assessed the socalled referendum in Georgia’s South Ossetia region as illegal and unconstitutional. Leonid Tibilov, ostensible President of Georgia’s breakaway region South Ossetia, announced a referendum to rename South Ossetia, “South OssetiaAlania,” as he says, “a historic name.” He said the referendum would be held on April 9, 2017 together with the presidential elections. The Georgian delegation stressed that this decision aims to lay ground for the illegal annexation of the occupied Tskhinvali region. The Georgian side underlined that the decision to hold a “referendum” in the occupied territory of Georgia is illegal and cannot have any legal effect as the occupying power fully controls the situation on the ground and the ethnic population have fled as a result of ethnic cleansing. The Georgian Delegation once again underlined that this is another act of aggression by the Russian Federation, fully neglecting the fundamental principles of territorial integrity and the inviolability of internationally recognized borders of a sovereign state, and is aimed at undermining the established international order.

Photographer: Irakli Dolidze Layout: Misha Mchedlishvili Webmaster: Sergey Gevenov Circulation Managers: David Kerdikashvili, David Djandjgava

The Georgian side also called on the international community to be vocal and take appropriate measures against the illegal actions of the Russian Federation; to spare no effort to avoid the escalation of the situation in the Tskhinvali region and to prevent another fact of illegal annexation in Europe. Georgia’s Ministry of Foreign Affairs reported that the representatives of the United States, Azerbaijan, Ukraine, Norway, Canada, Iceland, Liechtenstein and the European Union supported Georgia in their statements. Turkey, Ukraine, Moldova, San Marino, Montenegro, Bosnia and Herzegovina, Albania and Former Yugoslav Republic of Macedonia aligned to the statement made by 28 member states of the EU. “The delegations once again reaffirmed their firm support for the sovereignty and territorial integrity of Georgia within its internationally recognized borders,” the MFA statement reads. The EU representative expressed deep concern regarding the announced “referendum” and stated that the EU does not recognize the framework in which the so-called referendum would take place, considering it unconstitutional. “It was stressed that such illegal steps are against the ongoing efforts to strengthen security and stability in the region. The EU called on the Russian Federation to fulfill its obligations under the ceasefire agreement of August 12, 2008, and its subsequent implementing measures of September 8, 2008, and to provide the EUMM access to the occupied regions,” MFA said. The issue of so-called referendum was also raised by the Georgian side at the meeting of the Committee of Ministers’ Deputies of the Council of Europe.

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POLITICS

GEORGIA TODAY

FEBRUARY 21 - 23, 2017

Georgian PM Holds Highrank Meetings in Munich BY THEA MORRISON

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ithin the frames of the 53rd Munich Security Conference, the Georgian Delegation, headed by the Prime Minister, Giorgi Kvirikashvili, held various meetings with high-rank officials. The 53rd Munich Security Conference took place on February 17- 19. More than 500 decision-makers from across the globe, including more than 25 heads of state and government, 80 foreign and defense ministers, and strong delegations from the new US administration and Congress, came together in Munich for discussions on major international security challenges. The Georgian PM first met with the High Representative of the European Union for Foreign Affairs and Security Policy, and Vice-President of the European Commission, Federica Mogherini. The EU High Representative commended Georgia's exceptional progress on its path towards the European Union (EU) and emphasized that the EU will complete the remaining procedures in relation to a visa waiver for Georgia in the near future. The Association Agreement was also discussed, with the Prime Minister

stressing the Georgian government's commitment to the effective implementation of the 2017-2020 Association Agreement Agenda. The sides also touched on the upcoming Eastern Partnership Summit planned for late 2017. On February 19, Kvirikashvili met his Turkish counterpart, Binali Yildirım. The Prime Ministers spoke of the need to further intensify the bilateral economic ties between the two countries and confirmed their commitment to deeper cooperation on important international projects, including the successful implementation of the Southern Corridor. Binali Yıldırım invited Kvirikashvili to attend the summit of the heads of states celebrating the 25th anniversary of the Organization of the Black Sea Economic Cooperation in Istanbul, scheduled for May 22. The Georgian government’s press office reports that at the meeting of the Georgian PM with the United States (US) Vice President Mike Pence, the US Vice President emphasized the readiness of the new US Administration to continue its strategic partnership with Georgia and expressed his hope to host the Georgian Prime Minister in Washington DC. Moreover, Mike Pence thanked Kvirikashvili for Georgia's special contribution to global security. During the meeting Kvirikashvili stated

The Georgian PM met with the High Representative of the European Union for Foreign Affairs and Security Policy, and Vice-President of the European Commission, Federica Mogherini

that Georgia, as a staunch partner and ally of the US, values deep strategic partnership with the United States. The Prime Minister invited the US Vice President to Georgia. Kvirikashvili also met with United Nations (UN) Secretary General, Antonio Guterres to discuss bilateral cooperation and the developments in Georgia's occupied territories. Kvirikashvili informed the UN Sec. Gen. of the hard situation along the occupation lines and human rights violations in the occupied territories. The parties emphasized the importance of the Geneva International Talks and the Gali Incident Prevention and

Response Mechanism, with the Georgian PM once again condemning the so-called referendum planned in the Tskhinvali Region, emphasizing that the international community should join forces to stand up to the provocative actions of the Russian Federation. Prior to meeting Guterres, Kvirikashvili and the President of the Islamic Republic of Afghanistan, Mohammad Ashraf Ghani, agreed to intensify the trade and economic, transport and transit cooperation between the two countries. Georgia's accession to the Energy Union, which will promote Georgia's alignment with European standards and will streamline energy issues, was dis-

cussed at the meeting of Kvirikashvili and Vice President of the European Commission and Commissioner for Energy, Maros Sefcovic. It was emphasized that membership of the Energy Union will enable Georgia to improve its energy security and boost the development of renewable energy sources and energy efficiency. The parties discussed important regional transit projects and Georgia's special role and importance in their successful implementation. The discussion also involved the second phase of the Shah-Deniz Project, as well as TANAP and TAP, which will bigly increase the transit of natural gas. The Georgian delegation also met Secretary General of the League of Arab States, Ahmed Aboul-Gheit. The key issues of their discussion included the enhancement of diplomatic relations as well as economic cooperation. Georgia received support from the President of Estonia, Kersti Kaljulaid, who told Kvirikashvili that Estonia expresses full support to Georgia on its European integration path. The parties emphasized the importance of the positive dynamics in the cooperation process, particularly in a view of the fact that Estonia is to become the President of the Council of the European Union in 2017.

Issue #922 Business  

February 21 - 23, 2017

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